WOOD Flash – Turkey macro: currency trading beyond fair value

We have downgraded our current account (CA) projections on the back of the latest trade and business data, together with the announcements on tourism, as Turkey seems to be on track to record a significant underperformance compared to our earlier expectations. The balance of payments releases for February and March revealed, as we had expected, that Turkey is past the trough. This is coupled with a slowdown in credit growth, which is also current account positive. However, the negative COVID-19 dynamics, just ahead of the summer season, with many countries still unwilling to ease flight restrictions quickly, higher oil and commodity prices, and the sentiment factor are adding more pressure on the CA. Even though we still expect the CA to narrow this year, we have reduced our CA projections to -3.8% in 2021E (vs. 3.0% before), followed by -3.3% in 2021E (vs. 3.5%). A more favourable scenario, of -3.3% of the GDP in 2021E, is plausible, but this is linked to the global COVID-19 developments, affecting global trade and tourism. We also note the deterioration on the funding front, on the back of a USD 5.7bn outflow in portfolio investment in March.